The great and the good have been milling around Davos this week, mulling over the challenges facing the global economy. Among the attendees is the OECD’s Angel Gurría, who’s been talking to a number of news outlets.
In an interview with Reuters, he was asked about British Prime Minister David Cameron’s pledge this week to renegotiate his country’s membership in the European Union and then ask British voters to decide on whether to stay in or get out of the EU.
The OECD Secretary-General argued that much of Britain’s frustration with the EU arose from the divergence in economic performance across the bloc between the peripheral economies and countries like Germany. “Europe has a problem of divergence in productivity and competitiveness,” he said. But he argued that the EU was now firmly on a path of recovery and convergence that would make the bloc stronger over the next five years. “We’re rebuilding, it’s going to be stronger, nobody’s going to leave,” he predicted.
Speaking to Bloomberg Mr. Gurría warned with “big yellow flashing lights” against complacency over the state of the world economy. “We’re not out of the woods yet,” he said. He called on governments to take action on long-term structural reform across a number of areas, including investment in education and innovation as well reforms to taxation: “Let’s go for the reforms,” he declared, “so that we can consolidate the recovery.”
OECD work on the economy
Who needs the Sundance Film Festival when you have this? The OECD’s annual competition for young videomakers.
Once again, we’re asking anyone aged between 18 and 25 to submit a short video (no more than three minutes) on a theme close to the OECD’s heart. This year, we want you to look at the global economy and then Think Differently: How would you shape tomorrow’s global economy? And what key issues do we need to think about to build a more inclusive world?
The prize? An all-expenses-paid trip to Paris in late May, just in time for the OECD Forum. As previous entrants can testify, that’s well worth winning: “It’s one of the most enriching experience of my life,” said Rachit Sai Barak, a winner in 2012. “At the Forum I not only had the privilege to listen to some of the most eminent economists, politicians and leaders of the world, but I also got a chance to share my experiences, highlight problems and find effective solutions.”
Your deadline is 2 April 2013. Don’t forget to visit the competition site to check out the rules and regulations.
Today’s post is from Rudolf Van der Berg of the OECD’s Science, Technology and Industry Directorate.
In 2017 a household with two teenagers will have 25 Internet connected devices. In 2022 this will rise to 50, compared with only 10 today. In households in the OECD alone there will be 14 billion connected devices, up from 1.7 billion today and this doesn’t take into account everything outside the household and outside the OECD. All this leads to the smart world discussed in a new OECD publication, Building Blocks of Smart Networks.
The OECD defines “smart” as: “An application or service able to learn from previous situations and to communicate the results of these situations to other devices and users. These devices and users can then change their behavior to best fit the situation. This means that information about situations needs to be generated transmitted, processed, correlated, interpreted, adapted, displayed in a meaningful manner and acted upon.”
Smart networks are the result of three trends coming together (and all being studied by the OECD). Machine to Machine communication means devices connected to the Internet (also known as the Internet of Things). This generates “Big Data” because all those devices will communicate and that data will be processed, stored and analyzed. And to enable the analysis, Cloud Computing will be necessary, because when entire business sectors go from no connectivity to full connectivity within a few years, they will need scalable computing that can accommodate double digit growth. Underlying these trends is the pervasive access to Internet connectivity.
New devices connected to the Internet may be invented, but you’ll see that the table only has everyday objects you may already have, but if you replace it in the coming years, the new version will be connected. (The ever-popular, but never seen in a shop near you, Internet connected fridge doesn’t make the list.) Connected lightbulbs may well be the Trojan horse of the smart home. Some companies estimate that connected lightbulbs will be the same price as normal lightbulbs five years from now. These lights will be able to dim and change color and fit in a regular socket. They can also serve as hubs, extending the communication network in the home to all devices.
Connecting machines and devices to telecommunications networks is nothing new. Even at the dawn of the Internet there were Internet connected coffee pots and coke-machines. It is the scale of the trend that forces us to pay more attention. Dutch company TomTom now has millions of GPS-navigation devices on the road, which have generated 5000 trillion data points. When systems need to be smart, the number of datapoints goes up. A dumb electricity meter can do with one reading per year. A smart meter needs a reading every 15 minutes for the electricity company, while for home automation a sampling frequency of once every 1 to 5 seconds is proposed, which could be a 31 million times increase over traditional datasets.
There are, however, challenges that need to be faced when introducing smart systems.
Human challenges. The way people interact with networks and systems may limit their use. For eHealth, smart systems can allow people to lead a normal life. However, a portable heart monitor that sends alarms every time it loses the signal or measures a false positive can have the opposite effect. Privacy and security concerns of users have prompted the Dutch parliament for example to change the rules for smart meters.
Lifecycle challenges. A car should last for 15 years. A mobile phone works for 2-4 years. Mobile phone networks move to new protocols every 15 years. Energy networks have a 15-50 year lifecycle. When a technology is introduced in a vehicle today, the first cars with that technology may reach the end of their lifecycle in 2028, the last ones in 2038. What’s more, if the lifecycles of two distinct sectors meet, the effect can be even more pronounced. Think of the charge point for electric vehicles. It may have to function for 30 years or more, meaning that all vehicles in the coming 30 years will have to be compatible and that the infrastructure needs to be active for another 15 years. Today’s choices for smart systems will be long-term decisions.
Business Challenges. A previous OECD report concluded that users of M2M systems that make use of mobile technology are locked-in with their mobile networks. They can’t change networks and when the devices go across borders they are locked in with their operators. And according to Norwegian research, as many 30% of devices can be offline for 10 minutes per day. To solve these problems the OECD advises governments to change their numbering policies, so that large scale M2M users can become independent of mobile operators and use multiple networks at the same time.
Another business challenge is that it is unclear who has the lead in the smart networks sector. For smart metering, energy companies, meter manufacturers, ICT-companies and telecom companies have all said they will lead.
Regulatory challenges. Governments will be confronted with difficult policy issues, notably concerning privacy and security. A recent review of industrial control systems of five major manufacturers showed that all five could be hacked and sometimes very easily. If companies that supply multi-million dollar systems cannot get essential elements of security correct, than how can you trust systems bought in a DIY store? Would it be possible for a hacker to turn up the airconditioning or heating in a million homes to bring down the electricity grid?
Other questions governments face are regarding access to data. Who owns the data, is it the company or the consumer? If a government collects a dataset, can it share that data for other uses?
Today’s post from Gunnar Oom, State Secretary to Sweden’s Minister for Trade Ewa Björling, is the last in a series published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
Sweden has a vision of an international trading system that embraces all nations of the world, not only those that are already well-off. That is why free trade coupled with trade-related development cooperation is a priority for the Swedish Government. This is also why I, as State Secretary to the Swedish Minister for Trade, am pleased that Sweden is co-arranging this Policy Dialogue on Aid for Trade in Paris on 16–17 January.
Economic growth, including trade and market development assistance, continues to be a priority for Swedish development cooperation. Economic growth is a prerequisite for combating poverty, and so trade, leading to increased growth, can be a powerful tool for reducing poverty.
The overall target of Swedish Aid for Trade is to strengthen the least developed countries’ integration in world trade and their ability to take advantage of the opportunities of the multilateral trading system. Swedish Aid for Trade also aims to support and promote responsible business practices in accordance with the UN Guiding Principles on Business and Human Rights, the principles of UN Global Compact and the OECD Guidelines for Multinational Enterprises. There is a connection between trade and social and environmental concerns. Responsible business practices, with companies that follow international guidelines and the principles of corporate social responsibility, CSR, can increase the impact of Aid for Trade.
This is also why the engagement of the private sector in the Aid for Trade framework is crucial. It is essentially companies, not governments or countries, that trade with each other. It is firms that know what challenges they face when it comes to market access and integration in global production networks. Access to export markets is essential for low- and middle-income countries to develop their trade and make use of the potential for increased growth that trade can offer.
Sweden’s own vision of Aid for Trade has been bold since the adoption of the Aid for Trade recommendations. Between 2010 and 2011, Sweden almost doubled its Aid for Trade disbursements to trade-related assistance, from SEK 592 million to SEK 1.1 billion. We have scaled up and stepped up, and will continue to be an ambitious free trade nation.
The Swedish International Development Cooperation Agency (Sida) is instrumental in transforming our ambitions on Aid for Trade into action. It bases its work on the demands and needs of partner countries and Sweden’s comparative advantages.
The Swedish National Board of Trade is another important Swedish actor in Aid for Trade. As the Swedish expert authority, the National Board of Trade builds capacity in trade-related areas such as rules of origin, trade facilitation, technical barriers to trade and WTO matters. The National Board of Trade hosts Open Trade Gate Sweden, a one-stop information centre for exporters in developing countries.
Looking ahead, it is important to focus on the quality of Aid for Trade in order to ensure that resources are used efficiently. Global efforts on Aid for Trade must be efficiently monitored and evaluated.
The principles of ownership and donor coordination in the Paris Declaration are central. Sweden is increasingly moving towards joint integrated trade programmes, channelling funds through co-funded programmes with other bilateral donors, multilateral organisations, regional development banks, research networks and universities, and Swedish trade support agencies and institutions.
We also need to become better at linking our efforts to reality on the ground – to the possibilities and constraints faced by poor women and men. Understanding the long- and short-term linkages between trade and poverty as well as the gender dynamics behind these linkages will help us address the challenge of making trade a powerful engine for poverty reduction.
A large part of trade today takes part within value chains. This means that the production of goods and services is fragmented and separated in different parts of the world. Value chains underline the need and importance of open markets, not least the importance of imports. Though not a new phenomenon, value chains have become increasingly visible. Reduced costs for trade, transport, international standards and new communication and technology solutions have fostered international production networks and increased specialisation.
Value chains offer opportunities for low- and middle-income countries to access global markets and integrate with the world economy. They have decreased the importance of access to raw materials and a large domestic market. I believe this is how we need to see value chains in the Aid for Trade context: value chains can attract investment in low- and middle-income countries, competitiveness can be highlighted, production can be advanced and specialisation can be promoted.
At the same time, value chains impose increased demands for smooth cross-border trade, so that goods do not get stuck at borders. Integration in the value chain means meeting increased quality-related demands such as certification requirements, as well as requiring well-functioning institutions and infrastructure.
Moreover, value chains highlight the need for services, the glue of the value chain. Services such as research and development, commercial services and marketing, transports, logistics etc. are central. These requirements are likely to have positive effects throughout the economy, leading to increased growth in low- and middle-income countries.
So Aid for Trade should be used to oil the process of integration in the global economy, to address the obstacles to integration in the value chain faced by low- and middle-income countries.
Important challenges lie ahead in ensuring the efficiency of Aid for Trade. May the OECD Policy Dialogue be an inspiration to us to continue to discuss and shed light on how results can best be achieved and evaluated. Input from our partner countries as well as the private sector is crucial. Sweden will continue to make every effort to ensure that Aid for Trade is a driving force for development!
Sweden provides a voluntary contribution to the OECD project on aid for trade, global value chains and trade facilitation, which will published a two-page brief on Trade Policy Implications of Global Value Chains to coincide with the launch of a new Trade in Value Added database later today.
Sweden also supports the following initiatives:
Today’s post from OECD Secretary-General Angel Gurría is published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
“Aid for Trade” has galvanised broad engagement from the international community to support developing countries to make the most of international trade.
Successive Global Reviews have provided clear evidence that the Initiative has lead to an integration of trade policies in national development strategies, to an inclusion of trade considerations in planning frameworks and consultations with national stakeholders and dialogues with donors. The Initiative is also associated with an increase in commitments ($45 billion in 2010) to tackle bottlenecks that undermine the ability of local producers to access regional and global markets.
So, Aid for Trade has contributed to better lives for many people in developing countries. It is particularly encouraging that about a third of the funds went to least developed countries (LDCs) and that the funds provided have been over and above aid flows to other important sectors, such as education and health.
“Aid for Trade” provides us with a number of encouraging success stories. In Zimbabwe, for example, support and commitment at the highest political levels was mobilised for the implementation of the Chirundu One Stop Border. The Cameroon Customs Reform project provides another successful example of stakeholder involvement as it involved local customs inspectors in the design of performance contracts that would be used to evaluate their performance. An aid for trade project in Senegal has helped to support the competitiveness and the sustainability of the agricultural sector, contributing to increasing exports of certain agricultural products by almost 80% between 2005 and 2009 and creating 85 new businesses. In Vietnam an aid for trade programme helped increase the level of exports to the United States from USD 1.1 billion in 2001 to USD 8.6 billion in 2006, and the level of imports from the United States from USD 460 million to USD 1.1 billion.
On top of such best practice examples, an important growth and employment narrative has emerged around Aid for Trade. The impacts of such programmes range from increased export volumes to higher employment, notably of women, faster customs clearance and border transit times, and poverty reduction. Many of these achievements are being made by the LDCs. Enhanced transparency and strengthened accountability provided through OECD and WTO monitoring have helped in making that progress possible.
The Aid for Trade Initiative has been gaining momentum over the past years and its global monitoring mechanisms are improving considerably. But it operates in a rapidly evolving environment. Since the launch of the Initiative in 2005, there have been fundamental changes in trade patterns, including increased south-south cooperation or the emergence of global value chains.
The Global Partnership for Effective Development Co-operation, launched in 2012 as a follow-up to the 2011 Busan Forum on Aid Effectiveness, provides a new framework for strengthening efforts to help developing countries in leveraging and improving the results of diverse forms of development finance and ensuring that all these have a catalytic effect on trade and development.
Certain contextual factors, such as an efficient infrastructure connecting local producers to markets and a good regulatory environment, are key for countries to reap the full benefits of a liberalised trade regime. Aid for Trade can be a catalyst for such an environment and in helping to attract domestic and foreign investment in developing countries, so as to stimulate economic growth and advance poverty alleviation.
Cape Verde for example has successfully managed its economic transformation and become a globally competitive economy. It has made significant progress on the Millennium Development Goals (MDGs) and in 2007 managed to graduate out of the LDC status (only two other countries have managed that transition, Maldives in 2011 and Botswana 1994). Aid for trade policies and the WTO accession of Cape Verde have played a catalytic role in supporting the country’s economic growth strategy.
It is against this backdrop that we are hosting a Policy Dialogue on Aid for Trade on 16 and 17 January 2013 at the OECD in Paris. This dialogue will focus on how the international community can continue to deliver results on aid for trade in today’s quickly evolving global context of trade and development. The discussions among trade and development experts, providers of South-South co-operation, and representatives from the private sector, think tanks, civil society and academia will focus on several issues. They include the delivery and management of aid for trade and development results, options for easing constraints to trade, promotion of regional aid for trade programmes, reduction of the costs of importing and exporting (the so called ‘thickness’ of borders), the link to value chains and engagement of the private sector.
We hope that the outcomes of this dialogue will provide valuable inputs to the Fourth Global Review of Aid for Trade, “Connecting to Value Chains”, to be hosted by the World Trade Organization in July 2013. Now let’s have a meaningful dialogue for better trade policies for better lives!
Today’s post from EU Trade Commissioner Karel De Gucht is the second in a series published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
One thing is for sure: No country has ever lifted itself out of poverty without international trade. Trade is key to help countries develop. So we need to make sure that people in the world’s poorest countries have access to markets, to create jobs and encourage growth as a result. But trade needs the right conditions to flourish. Bottlenecks and inefficiencies – whether at border crossings, or in the way the economy is regulated, or even within the private sector – get in the way of progress and prosperity.
That’s where Aid for Trade comes in: as financial assistance to build new infrastructure, improve ports or customs facilities in developing countries – in short: we want to help developing countries “trade” their way out of poverty.
Today, the EU and its Member States provide more trade-related development assistance than the rest of the world put together. We contributed a third of world-wide Aid for Trade assistance, or €10.7 bn, in 2010 – that’s a quarter of our own total official development assistance (ODA) budget. And the results speak for themselves: a 10% increase in Aid for Trade spending on infrastructure has been shown to lead to a 6.5% increase in goods exports.
However, what really counts in the current crisis, with ODA shrinking, is that we continue to support developing countries’ integration into the global economy – and make the most of our aid budgets for this purpose.
How do we do this?
The starting point is of course that we use the resources available effectively. This means we need to target Aid for Trade right and prioritise especially Least Developed Countries (LDCs).
Also, the most effective Aid for Trade projects involve multiple countries – like those focused on key regional trade corridors, for example. So we need to count on cross-border and regional programmes.
That is why I believe Economic Partnership Agreements (EPAs) can make an important contribution to the development of ACP countries. World tariffs have never been this low and the EU already offers very favourable market access to poor countries. So where EPAs can make a real difference are non-tariff issues or so-called ‘behind the border issues’ – standards, services, intellectual property rights, public procurement, technical, social and environmental rules, infrastructure and packaging facilities. We have already gone this far with developing countries in Latin America and aim to do the same with partners in South-East Asia.
Today’s modern trading environment is dominated by the way manufacturers build up, assemble or even improve a product at different stages in the production chain. With two-thirds of world trade now involving intermediary inputs, it is vital to address these ‘behind the border issues’ so that developing countries can really be part of this process and integrate into global value chains.
Eventually, we need to involve the private sector better. If companies are not integrated in the design of Aid for Trade projects – by identifying the constraints that most need to be tackled for example – then they are unlikely to make use of the results. Aid for Trade can empower companies in developing countries to boost their trade to the EU, making the best of the EU’s generous tariff preferences.
At the same time, the success of Aid for Trade of course depends on requests from our partner countries, as we always encourage them to take the lead. Aid for Trade works best when governments are aware of the role that openness to trade plays in development. They need to include trade policy in their national development strategies to create a business-friendly environment to attract foreign direct investment.
There are some who say that these arguments are all very well for developed countries but that infant industries in developing countries need protection. I disagree entirely with this: if there is one thing that is not lacking in developing countries, it is entrepreneurship and the will to compete. What entrepreneurs need are opportunities – opportunities that trade can provide. Just look at the practice – in China, India, Brazil, South Africa and all across the emerging world. The economies that have opened up have reaped the rewards.
Finally, a WTO deal on trade facilitation will be an important factor to make trade work for developing countries. Improving custom procedures by computerisation, cutting red tape, and simplifying rules and documents makes doing business more predictable and helps goods move faster across borders. Studies suggest that the cost of doing so would not be more than €10 million per country. But in Sub-Saharan Africa alone, an average 5% reduction in time spent at the border could achieve a 10% increase in intra-regional exports. In some African countries, revenue losses from inefficient border procedures even exceed 5% of GDP. If an exporter cannot say for certain when his products are going to get to customers then he is going to lose business. Lack of transparency – especially with respect to fees – creates high transaction costs.
With this in mind, the EU is actively working with other partners to secure a WTO Trade Facilitation Agreement for the WTO Ministerial meeting in Bali in December this year. We need everyone to get behind such a deal. Because Aid for Trade will work so much better if all WTO Members commit to making the necessary policy reforms. At the same time, any deal on trade facilitation will be impossible to implement on the ground without the right financial support – so this is also an opportunity to make the case for continuing support to Aid for Trade.
But we know that the story doesn’t end there. If we want to see further results we need to be there as partners for development over the long haul. It is only through a collective effort to deliver a well-funded, effective policy that we will achieve our objective: to see developing countries, particularly the poorest amongst them, make the most of globalisation. As far as the European Union is concerned, that means at both Member State and European level we must therefore do our very best to maintain these levels of commitment. I certainly am ready to do so.
Today’s post from Pascal Lamy, Director General of the WTO, is the first in a series published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
Aid-for-Trade is as relevant today as it was when the Initiative was launched at the Hong Kong Ministerial Conference in 2005. Developing countries, and in particular Least-Developed Countries (LDCs), have made measurable progress in their participation in the global trading system. But for many, this participation still remains too narrowly focused on a limited range of exports (often primary commodities). And prospects for further integration into the global economy continue to be hampered by a range of supply-side and trade-related infrastructure constraints.
But there have been some bright spots. Annualized over the period 2005-2011, the volume of world merchandise trade grew by some 3.7 per cent – albeit with a sharp downturn in 2009. For many developing countries, growth rates over this period have been much higher. For example, LDCs merchandise exports grew by 4.6% annually. By contributing to mobilise the potential of developing countries to participate into world trade, Aid-for-Trade can reasonably claim to have played a part in this expansion, and in particular for LDCs.
Examples cited at the Third WTO Global Review in July 2011 illustrate how Aid for Trade can be effective in building infrastructure, addressing supply-side constraints and putting in place the necessary regulatory systems that developing countries need to facilitate their participation in the global trading system. The range of activities profiled were substantial across a wide spectrum of countries and sectors.
Successive monitoring exercises since 2007 have also highlighted progress in promoting coherence between trade and development objectives. This has two components: “mainstreaming” trade into the national and sectoral development strategies of developing countries – and galvanizing support from development partners to help address trade-related development objectives identified by countries themselves. The initiative has also sought to highlight the importance of effective monitoring and evaluation of the outputs and impacts of Aid for Trade assistance.
Since the Aid-for-Trade Initiative was launched in 2005, over $200 billion has been mobilized in funding to help developing countries participate in the global trading system. Figures from the OECD highlight that the annual Aid-for-Trade funding envelope has grown by 80% in real terms since 2005. This figure would increase further if the trade- related assistance offered by South-South partners was included.
Particularly gratifying has been that some $60 billion has been directed to the world’s poorest countries. They have been one of the notable beneficiaries of increased Aid for Trade funding. Between 2005-2010, Aid-for-Trade funding to them doubled from $6.8 billion in 2005 to $ 13.6 billion annually.
Yet the job is far from complete. For example, despite their recent impressive growth, the 49 LDCs still only account for 1.12% of global trade. And many other developing countries continue to need assistance to overcome their supply-side constraints; small and landlocked economies are particular cases in point.
We also need to understand how Aid for Trade can best contribute to enhancing developing countries’ growth prospects in a global economy increasingly characterized by complex production networks in which production of goods and services has been unbundled into many different component parts. A global division of labour based on comparative advantage in trade in tasks has complex trade and development policy implications. One such policy consideration is the under-recognized role of services, not just in the global economy, but also in development more generally.
WTO is actively collaborating with the OECD to explore the policy questions raised by value chains. This will be the central theme for the Fourth Global Review of Aid for Trade: Connecting to Value Chains, on 8-10 July 2013. The Fourth Global Review will be informed by research work on value chains and a monitoring exercise that for the first time is being extended to the private sector.
Fiscal pressures are mounting among key donors. The funding outlook for development assistance (of which Aid for Trade is part) is muted. As part of their Multiyear Action Plan on Development, G-20 leaders committed to maintain Aid-for-Trade expenditure at 2006-2008 levels. Notwithstanding this pledge, we need to make the case for continued Aid-for-Trade funding – not just from traditional donors, but also from South-South partners and explore how to bring the private sector into the picture.
The OECD’s Policy Dialogue on 16-17 January is an important opportunity for the Aid for Trade community to gather and discuss the way ahead. To identify how best to address the on-going challenge facing many developing, and in particular LDCs, on how to integrate into the multilateral trading system and to benefit from liberalized trade and increased market access.
I hope the OECD Policy Dialogue will give renewed impetus; impetus for the Fourth Global Review of Aid for Trade and a strong mandate to continue the Aid-for-Trade Initiative when WTO Ministers meet at the Bali Ministerial on 3-6 December 2013. It should also give renewed impetus to ensure that Aid for Trade continues to positively impact the trade and development prospects of developing countries in the most effective manner.